Correlation Between Rio2 and Perseus Mining

Can any of the company-specific risk be diversified away by investing in both Rio2 and Perseus Mining at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Rio2 and Perseus Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rio2 Limited and Perseus Mining Limited, you can compare the effects of market volatilities on Rio2 and Perseus Mining and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Rio2 with a short position of Perseus Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio2 and Perseus Mining.

Diversification Opportunities for Rio2 and Perseus Mining

0.85

Correlation Coefficient

Rio2  Perseus Mining

Very poor diversification

The 3 months correlation between Rio2 and Perseus is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Rio2 Limited and Perseus Mining Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perseus Mining and Rio2 is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Rio2 Limited are associated (or correlated) with Perseus Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perseus Mining has no effect on the direction of Rio2 i.e., Rio2 and Perseus Mining go up and down completely randomly.

Pair Corralation between Rio2 and Perseus Mining

Assuming the 90 days horizon Rio2 Limited is expected to generate 1.49 times more return on investment than Perseus Mining. However, Rio2 is 1.49 times more volatile than Perseus Mining Limited. It trades about 0.21 of its potential returns per unit of risk. Perseus Mining Limited is currently generating about 0.2 per unit of risk. If you would invest  42.00  in Rio2 Limited on December 29, 2024 and sell it today you would earn a total of  22.00  from holding Rio2 Limited or generate 52.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Rio2 Limited  vs.  Perseus Mining Limited

Rio2 Limited

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rio2 Limited are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Rio2 reported solid returns over the last few months and may actually be approaching a breakup point.

Perseus Mining

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Perseus Mining Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Perseus Mining reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio2 and Perseus Mining

The main advantage of trading using opposite Rio2 and Perseus Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio2 position performs unexpectedly, Perseus Mining can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Perseus Mining will offset losses from the drop in Perseus Mining's long position.

The idea behind Rio2 Limited and Perseus Mining Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.